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Ninth Amendment to German Act Against Restraints of Competition to Take Effect Soon

Key changes triggered by the amendment relate to a company’s liability for cartel infringements, the introduction of a transaction value test into merger control, private enforcement through the implementation of the EU Cartel Damages Directive, the assessment of market power in multilateral markets, and the extension of the German Federal Cartel Office’s authority to consumer protection.

This LawFlash summarizes the key changes of the ninth amendment to the German Act against Restraints of Competition (GWB) (“Amended Law”), which was adopted on March 31 and presumably will enter into effect in April or early May of 2017.

Cartel Liability

The Amended Law significantly extends the liability for cartel infringements by introducing the concept of group liability. Under the Amended Law, parent companies can be held liable for cartel infringements of affiliates—provided that the parent company and the guilty affiliate constitute a single undertaking (in other words, where the parent exercises a controlling influence over the affiliate). The aim is to harmonize German cartel liability provisions with European competition law. Also, all companies belonging to the same group will now be jointly and severally liable for the fines imposed.

Furthermore, the Amended Law tightens the rules for cartel liability in cases of legal succession. This change was necessary to prevent companies from avoiding fines by restructuring and winding down the infringing entity. Going forward, the German Federal Cartel Office (FCO) can impose fines on the (full or partial) legal as well as economic successor of the actual entity whose representatives violated the GWB. This new set of rules is accompanied by a provision allowing the FCO to fine a parent company even after the beginning of an investigation against its affiliate—provided that the affiliate is restructured or dissolved during the FCO’s investigation.

These new rules create additional antitrust risks in mergers and acquisitions transactions and should be contractually addressed accordingly.

Merger Control—Transaction Value Test

The Amended Law introduces a new merger control threshold based on the transaction value. Under the past merger control regime, transactions were exempt from the FCO’s review if one of the parties to the transaction (typically the target) did not achieve sales of at least €5 million in Germany—even in the case of high transaction values. Such a situation may occur in the acquisition of start-up companies or (often) internet companies. Under the Amended Law, such transactions will be notifiable in case the value of the consideration paid exceeds €400 million, and the target has significant activities in Germany. A high purchase price is seen as an indicator of a potential competitive advantage in the transaction for the acquiring company (e.g., Facebook/WhatsApp).

Although the number of cases triggered by this additional test is expected to be small, it is likely to raise difficulties with respect to the interpretation of the target’s “significant activities” in Germany, which may vary depending on the underlying industry. The consideration typically includes the purchase price (including possible conditional/future payments) plus debt that the acquirer is willing to take over.

Private Enforcement—Implementation of the EU Cartel Damages Directive

The Amended Law implements the EU Cartel Damages Directive, further strengthening the private enforcement of antitrust damage claims in Germany.

The major changes of the Amended Law include the following:

Introduction of a rebuttable presumption that a cartel caused damages.

With respect to the passing on defense, the rebuttable presumption in favor of an indirect purchaser that the overcharge has been passed on to such indirect purchaser.

Exclusion of the leniency applicant from the joint and several liability of all cartel members. The leniency applicant only needs to compensate its direct and indirect purchasers. Small- and medium-sized companies also benefit from this exclusion from joint and several liability.

Introduction of disclosure mechanisms for the parties to a dispute, which allows a party to request the disclosure of information/evidence from the opposing party and/or third parties. Leniency and settlement submissions are excluded from disclosure to protect the efficiency of the leniency and settlement programs.

Extension of the regular limitation period from three to five years.

Unilateral Conduct—Impact of Digitalization

The Amended Law clarifies—in line with case law of the German Federal Supreme Court—that transactions between two parties that do not foresee a payment of money may nevertheless constitute a market. Further, the Amended Law introduces several criteria for the assessment of the market power of an undertaking in multilateral markets and networks, including

direct and indirect network effects,

parallel use of multiple services and switching costs for the user,

economies of scale in the context of network effects,

access to competitively relevant data, and

innovation-driven competitive pressure.

The German legislation intends to improve the assessment of market power with these changes, considering the economic significance of multilateral markets.

Consumer Protection

A last-minute change in the Amended Law relates to the heavily debated extension of the FCO’s authority to consumer protection. The Amended Law provides the FCO with the right to perform sector inquiries to reveal substantial, permanent, and repeated violations of consumer protection rules that affect a variety of consumer interests. This relates in particular to violations of the Law against Unfair Competition and violations of terms and conditions. It is expected that the FCO will soon initiate a test case to gain initial experience with this new enforcement tool. Past sector inquiries have typically lead to changes of the business practices in the underlying industry.